Managing Director/Chief Executive Officer, Suru Group, Mr. Edward Akinlade, in this interview with Eromosele Abiodun spoke extensively about the state of the housing sector in Nigeria, his business and sundry issues in the sector. Excerpts:
As a veteran of the property and investment segment of the economy, how would you assess the real estate sector in Nigeria?
Everyone agrees that there is a huge gap to be filled in the real estate sector, but in reality, the gap only exists at the affordable housing level. In order to close this gap, government should create an enabling environment for operators in the private sector to thrive. Unfortunately, land value is the biggest factor that is limiting growth in this market. Government should consider making land available for developers to build and sell affordable houses in every state of the federation.
Some of my colleagues have made representations to the Minister of Power, Works and Housing, Mr. Babatunde Fashola in this regard. If developers are given a mandate to build 10,000 housing units every year in the 36 states and Abuja, for example, that will amount to 370,000 affordable houses available to citizens annually with government’s support. One approach could be for government to give the developer land to build 10,000 units with a promise that 30 percent of the houses will serve as payment for the land and the developer can do whatever he wants with the remaining.
Nigerians are eager to see things happening from this government and I believe this is something that should be easy for the government to implement. It is our hope that the Federal Government would work to aggressively reduce the massive 20 million housing deficit in Nigeria. Most economies enrich their citizens through housing. This was done in the UK through a programme called “Right to Buy” where people let homes and the government later sells to them at a discount. A similar initiative will work wonders in Nigeria.
Closely related is the hospitality industry where the government is not doing enough to encourage investors. One of the reasons why we have not expanded our Best Western brand, for example, or Suru Express brand is because the enabling environment is not there. For instance, we pay VAT to the Federal Government while the Lagos State Government collects consumption tax as well. Yet, we cannot increase the room rates because competition is fierce in the market. Also, the banks are not helping matters with the interest rates that they charge.
How would you compare the real estate sector in Nigeria with that of Britain where you worked for several years?
The UK market is more transparent in every direction. If I need money to do any real estate development in London, I would approach the banks with a proposal and if they like it, they will give me the funds. Interest rates are at a maximum of five percent unlike in Nigeria where the rates are between 25 and 30 per cent. It’s a killer. So, unless you want to do the development and get double from day one, it doesn’t add up. Also, if I want to do a development in the UK, I would make my application to the local authority and within 28 days to two months’ at the most, I would obtain the approval to build. Submit an application for Governor’s Consent to build in Nigeria and you may be on it for six months up to one year. That is why some developers cut corners. The cost of getting title deeds is so exorbitant and time wasting also.
Government officials are aware of these lapses but bureaucracy around what they do is not allowing them to change. In Lagos, for example, they cannot change because the money they make out of the land department is a huge revenue earner. We need to learn from other nations such as Kenya, Ghana and South Africa.
With the decline in oil prices and instability in the economy generally, can the real estate sector play a defining role in becoming a driver and mainstay of the Nigerian economy?
There is no doubt about it. Let’s take the deficit in housing which we know is operationally more than 20 million at the moment. If this number of units gets built and is sold to people, the houses would have appreciated enormously within five years. Basically, you are transferring wealth to them. But the worry has always been about where people will get the money to buy. In the UK, the mortgage market is very active. Payment period is between 20 and 25 years and you only pay interest while the principal will be collected on the day you sell the property. If you apply for a mortgage in Nigeria, the banks will say the mortgage is for five years with 20 percent interest and you are also expected to pay the principal. The economy and our people will be the better for it if low income earners can be assisted to get mortgages.
We did an affordable housing project of 27 units in Ibeshe four years ago. We sold it to the residents there for N8 million. Now, the owners are selling the units for N15 million. If that was done on a much larger scale, the level of equity it would have transferred into people’s pocket would be enormous. The N7 million profit on those properties will be available for other investments in other that will grow his portfolio. So, you can actually use it to redistribute wealth and to rebalance an economy like ours that is too focused on oil. If we do the right thing through housing, we don’t really need to bother about whether oil prices go up or down. So, if the government is sincere, they can change the outlook of the economy in less than one year through housing.
You are also involved in the hospitality sector in Nigeria. Do you think there is a proliferation of hoteliers in the country today?
I think one needs to be extremely clear on why we build hotels in Nigeria. Most of the hotels in most parts of Nigeria were not built for tourism. They were built mainly for business and private visitors to Nigeria. A tourist hotel will usually have an ocean view. It will be a place for people that are visiting Nigeria just to enjoy themselves. So, we have that mismatch as most of the hotels are aiming for the same set of customers rather than differentiate and say ‘this is what I am’ or ‘this is what I do.’ In London, for example, you have what is called a City Hotel right there in the town centre, providing accommodating for short-term visitors on business and then you have hotels in resort areas like Brighton. Hardly do you see that in Nigeria.
Tinapa may be an exception but do people go to Abuja for leisure? With respect to proliferation, the hotel industry in Nigeria is not a closed-shop because it is open to everybody. You can just buy land and build a hotel but you may find out that the hotel would soon become a mushroom one. We have the Best Western Hotel in the Suru Group. We bought the name from Best Western in Ireland and they come once or twice a year to inspect the quality which is very crucial. Anyone can just build a hotel next door to you. What can you do? In the UK where I lived for many years, if you have a hotel on a street and someone wants to start a hotel next door, they will have to go to the local authority to get approval and then, the council would enquire why when there is a hotel next door.
The answer could be that the hotel is filled up but if the hotel is not filled up, why build another one. When we came into Ikeja GRA in 2006, there were only four hotels. Today, it cannot be less than 40 and still, others are under construction. I know about five more are under construction in Ikeja GRA alone. Now, what is the business that they are all targeting if not visitors into Lagos? It’s good for the visitors but unfortunately, it is not good for the industry because sooner than later, most of them will close down. This is because you cannot use bank money to build these hotels and remain open when your expected occupancy of the hotel is not happening. So, we would still have proliferation of hotels in Nigeria for a long time because the market has not been segmented. Right now, everybody is fitting into one segment of the market and that is a recipe for disaster.
How did you end up in the real estate/hospitality industry?
I think my last few years in the UK basically shaped what I am doing in Nigeria. My last few years in the UK were mainly in the real estate/property market. So, when I relocated to Nigeria, I decided to specialise in property. Hotel is just a by-product but it still focuses on brick and mortar. When I came here in 2006, nobody was investing in Ikeja GRA. So the Suru Group took the decision to focus our investment in Ikeja. So it is unlikely anybody would do anything in this GRA without coming to us first. If you want to buy a land or a house, you are likely coming to Suru Group. It’s only in the last one year that we are now going out of Ikeja GRA.
Before coming home to invest, what were your career highlights?
My work experience in the UK started with Westminster City Council before I joined a housing association and I also worked for an accountancy group. I was actually more of a property development consultant in the last few years of being in the UK. But my training as a management accountant gives me an edge over everyone else, I can smell a good deal before everyone else can do. When I receive any proposal, I am looking at the figures even before I look at every other thing. So when the figure adds up, I start looking at the quality and what we need to do to get it better while some people would be looking at something else.
Why did you decide to study for the CIMA qualification?
I have always had a passion for accountancy but I just don’t like the auditing line. I like to understand the numbers and to make use of those numbers. So I went to the London School of Accountancy. I am sure the school is closed now. I spent about three years doing the CIMA exams and after passing the exams, I started working in London. Before I left for the UK, I went to the Lagos State College of Science and Technology. I have an OND in Business Administration.
What are the benefits of undergoing the CIMA qualification process? Would you say it has contributed to getting you to where you are today as an entrepreneur?
Well, there is no doubt about that. Like I said, everything about me has to do with interpreting figures. So CIMA exam prepared me for that and it has shaped me to become what I am today. Without going through the CIMA training, I won’t be where I am today. If I had settled for other accounting qualifications, my focus will be to merely prepare accounts for other people which is at odds with my role as an entrepreneur who is using past figures to shape your tomorrow.
What, in your view, is the true value of management accountants to businesses, especially in Nigeria?
Well, it is of immense importance. I think most organisations do not understand the importance of hiring a management accountant. The accounting department in most organisations only prepare the accounts that are of little value in decision making but the CIMA member would interprete the figures and give directions for the future. It is unfortunate that most of the companies listed on the Nigerian Stock Exchange do not have CIMA members working for them.
Sadly too, they cannot be found in most government establishments. I can assure that if you have a CIMA member in government in any of these states that cannot pay salaries, that CIMA member would be able to guide the governor on the things that should be done to cut costs and to achieve growth. Now that they are looking at costing issues, the CIMA member would be able to assist them.
What advice would you give to young people who are aspiring to pursue certifications in accounting/finance and they decide to go for CIMA?
Well, my advice would always be for them to get on with it. It is a career path that one may not appreciate in the age range of 20 to 40 but when in his or her 40s and 50s, one will appreciate it better. It is unlikely that I would offer a person in his 50s a job here because I would think that he’s going to come and be my boss. So, the discriminatory element taking place as a result of age would have been removed if the CIMA qualification is obtained at a younger age.
So, I am going to say that you may not appreciate the CIMA qualification at age 20 but by the time you start getting on life, you would see why CIMA qualification is key to success in life. You don’t want to sit down in a finance function and just be preparing account for your MD day in, day out. You will be bored with it. But in management accounting, it varies, it changes as your organisation changes over the years and that is the attraction.
